Damages – Amendments – Loss of chance – Reflective loss

Charles Frederick Webster v Sandersons Solicitors (a firm): CA (Civ Div) (Lord Clarke of Stone-cum-Ebony, Master of the Rolls, Lady Justice Arden, Lord Justice Lloyd): 31 July 2009

The appellant (S), a firm of solicitors, appealed against part of an order in which the respondent (W), who brought an action against it, was granted permission to amend his particulars of claim and schedule of loss in certain respects.

The underlying subject matter of the action concerned investments made in a project. According to W, monies invested in the project were lost as a result of the negligent advice of a firm of solicitors (M). W instructed S to make a claim against M. The claim form was not served in time. W brought a loss of chance claim against S. Before the amendments to the claim form, the significant loss alleged was £1.9m, which was said to be the total sum invested by W in the project. The amended claim form showed a loss of over £30m. The loss was divided into sections and claimed under four ­categories: (i) sums which S accepted amounted in principle to personal loss of W; (ii) sums which W accepted amounted to the company's loss, subject to the application of the exception in Giles v Rhind [2002] EWCA Civ 1428, [2003] Ch 618; (iii) sums which, as W accepted, derived from payments made by the pension fund; (iv) sums in relation to which there was a dispute as to whether they amounted to personal loss of W or the company’s loss. The appeal was brought only in relation to quantum and related to parts of the schedule of loss, which were said to be losses not of W himself but of his company (W owned 99% of the shares in the company) and his pension fund. The company had made claims against M for loss but after the company was wound up the proceedings were stayed. The trustees of the pension fund had also issued proceedings against S.

Held: (1) The general principle was that the only person who could sue in respect of a wrong done to a corporation was a corporation, Foss v Harbottle 67 ER 189 Ct of Chancery and Prudential Assurance Co Ltd v Newman Industries Ltd (No2) [1982] Ch 204 CA (Civ Div) followed. A loss claimed by a shareholder which was merely reflective of a loss suffered by the company was not recoverable by the shareholder, save in a case where, by reason of the wrong done to it, the company was unable to pursue its claim against the wrongdoer, Johnson v Gore Wood & Co (No1) [2002] 2 AC 1 HL and Waddington Ltd v Chan Chun Hoo Thomas [2009] 2 BCLC 82 CA (HK) considered. The irrecoverable loss (being merely reflective of the company’s loss) was not confined to the claimant’s loss of dividends on his shares or diminution in the value of his shareholding in the company, but extended to all other payments which might have been obtained from the company if it had not been deprived of its funds, and also to other payments which the company would have made if it had had the necessary funds, even if the claimant would have received them qua employee and not qua shareholder save that that did not apply to the loss of future benefits to which the claimant had an expectation but no contractual entitlement. The principle was not rooted simply in the avoidance of double recovery in fact; it extended to heads of loss which the company could have claimed but had chosen not to and, therefore, included the case where the company had settled for less than it might.

(2) W’s company had brought proceedings and there was nothing to prevent the liquidator from pursuing the claims, Gore Wood followed, and Giles v Rhind distinguished, on the basis that, in that case, the company was disabled from bringing the claim by the wrongdoing. The same was true of the pension fund. There was no dispute about the heads of claim under category one. Category two losses were suffered by the company itself for which only the company or a shareholder suing on behalf of the company in a derivative action could have sued. Accordingly, the judge had wrongly treated the company’s losses as within the exception in Giles v Rhind and the losses claimed under category two ought not to have been allowed to be claimed by amendment. The same was true of the pension fund’s payment to the project and certain costs of sale of properties referred to in category three. It was for the trustees to pursue for the benefit of the trust fund any claim to which they might be entitled. The issue in relation to lost income from the company, as set out in category four, was likely to be one of remoteness rather than one of capacity to sue. It would not be right to disallow that amendment. The other head of loss in category four, relating to W’s liability pursuant to a personal guarantee for the company’s debt, was purely reflective of the company’s loss. Accordingly, the appeal was allowed to the extent of limiting the amendments of the schedule of loss permitted by the judge to items in category one and the claim for lost income in category four.

Appeal allowed in part.

Graeme McPherson QC (instructed by Mills & Reeve) for the appellant; William Flenley (instructed by Browns Solicitors) for the respondent.